Strong execution of plans to optimize cash flow and control
costs led to total debt reduction of $49.6 million
Alliance Resource Partners, L.P. (NASDAQ: ARLP) today reported a
net loss attributable to ARLP of $46.7 million, or $(0.37) per
basic and diluted limited partner unit for the quarter ended June
30, 2020 (the "2020 Quarter") compared to net income attributable
to ARLP of $58.1 million, or $0.44 per basic and diluted limited
partner unit for the quarter ended June 30, 2019 (the "2019
Quarter"). The decrease in net income attributable to ARLP in the
2020 Quarter was primarily due to our decision to temporarily cease
coal production at five of our seven mining complexes at the
beginning of the 2020 Quarter in response to the impacts of the
COVID-19 pandemic and coal market deterioration. Production days
were cut in half compared to the quarter ended March 31, 2020 (the
"Sequential Quarter") as we gradually resumed production during the
2020 Quarter. (Unless otherwise noted, all references in this
release to "net income (loss)" refer to "net income (loss)
attributable to ARLP.")
"As we cautioned in ARLP’s last earnings release, we expected
the energy demand destruction caused by the COVID-19 pandemic to
negatively impact our results for the 2020 Quarter," said Joseph W.
Craft III, Chairman, President and Chief Executive Officer. "For
the first half of 2020 coal-fired generation in the eastern U.S.
declined 33% compared to the same time period in 2019. Demand for
oil and natural gas also fell precipitously, driving commodity
prices lower and leading operators to curtail production. As a
result, Consolidated Segment Adjusted EBITDA for the 2020 Quarter
was $62.1 million compared to $165.3 million in the 2019 Quarter
and $111.7 million in the Sequential Quarter. While the pandemic
continues to create uncertainty in the global economy and suppress
energy demand, our customers have indicated their intention to take
all tons contracted for this year."
Operations Update
In response to the impacts of the COVID-19 pandemic and coal
market deterioration, ARLP announced earlier this year that it
would temporarily halt production operations at all of its mining
complexes in the Illinois Basin and its MC Mining complex in East
Kentucky (see March 30, 2020 and April 9, 2020 Press Releases).
With an objective of reducing coal production to match existing
contracted sales commitments for 2020, currently targeted at 27.0
million tons and 28.0 million tons, respectively, we planned to
curtail production at these operations as long as it was possible
to meet customer requirements from existing coal inventories.
Throughout the 2020 Quarter, ARLP monitored coal inventories at
each location and worked closely with customers to determine when
it would be necessary to resume coal production. Consistent with
this plan, underground production operations resumed in May at the
River View and Warrior mines in the Illinois Basin and subsequently
at each of the remaining mining complexes – Gibson and Hamilton in
the Illinois Basin and MC Mining in Appalachia. All seven of our
mining complexes are now producing coal. However, several of these
mines are running at less than capacity due to a limited spot
market in the U.S. and a seaborne market that continues to be
sub-economic for U.S. production.
Safety First has been the highest priority at ARLP throughout
our history and this focus has never been more important than
today. Our operating teams have successfully overcome the
challenges created by pandemic-related disruptions delivering
record safety results during the first half of this year. In
response to the pandemic, ARLP quickly implemented and has
continued to enhance health and safety protocols designed to
contain and mitigate the risk of infection from COVID-19. The
safety of our employees, their families and communities as well as
vendors and suppliers visiting our locations remain a priority for
ARLP.
In the 2020 Quarter, production volumes from our oil & gas
mineral interests increased 16.4% compared to the 2019 Quarter,
primarily as a result of additional mineral interests acquired in
the Wing Acquisition. Due to the pandemic, oil & gas volumes
declined as operators responded to lower demand and weak commodity
prices by shutting in wells leading to a 17.0% reduction in
production volumes compared to the Sequential Quarter. Weak
commodity prices also drove ARLP’s average sales price realization
per BOE in the 2020 Quarter lower by 44.0% and 34.3% compared to
the 2019 and Sequential Quarters, respectively. For the 2020
Quarter, lower prices more than offset the benefit of increased
volumes, resulting in a 38.0% decline in Segment Adjusted EBITDA
for our Minerals segment compared to the 2019 Quarter.
Sequentially, lower prices and volumes combined to reduce Segment
Adjusted EBITDA from Minerals by 50.0%.
Financial and Liquidity Update
As previously reported, ARLP has undertaken numerous efforts to
optimize cash flows, reduce working capital requirements and
strictly control capital expenditures and expenses and these
efforts have yielded significant positive impacts to date. Working
capital declined 29.6% from the Sequential Quarter, primarily due
to inventory falling by $36.1 million as coal inventories were
reduced by 862,000 tons during the 2020 Quarter. Cost control
initiatives have also lowered capital expenditures and general and
administrative expenses, which declined during the first six months
of 2020 by 49.1% and 27.0%, respectively, compared to the same
period in 2019.
During the 2020 Quarter, ARLP increased free cash flow by $29.2
million, improved liquidity by $40.2 million and reduced total debt
by $49.6 million, all as compared to the Sequential Quarter,
reflecting our sharp focus on managing for cash in the current
environment. Although total leverage increased to 1.82 times at the
end of the 2020 Quarter, ARLP’s balance sheet remains strong and
comfortably in compliance with all debt covenants, including its
total leverage covenant of 2.5 times. (For a definition of free
cash flow and related reconciliations to comparable GAAP financial
measures, please see the end of this release.)
As previously announced, the Board of Directors of ARLP’s
general partner (the "Board") suspended the cash distribution to
unitholders for the 2020 Quarter. While we continue to believe that
a sustainable distribution is an important contributor to long-term
value for ARLP’s unitholders, strengthening and protecting our
balance sheet is our immediate objective. Consequently, at its
quarterly meeting last week, the Board extended the suspension of
distributions through the quarter ending September 30, 2020. The
Board will continue to evaluate economic conditions and intends to
reassess its distribution decision following the third quarter of
this year.
Consolidated Financial Results
Three Months Ended June 30, 2020 Compared to Three Months Ended
June 30, 2019
The ongoing effects of the COVID-19 pandemic significantly
impacted our financial and operating results for the 2020 Quarter.
Total revenues for the 2020 Quarter decreased to $255.2 million
compared to $517.1 million for the 2019 Quarter. Operating expenses
of $187.2 million for the 2020 Quarter were also lower compared to
$314.3 million in the 2019 Quarter.
Coal Operations –
Weak coal demand, caused in large part by the
COVID-19 pandemic, led coal sales volumes lower to 5.2 million tons
in the 2020 Quarter, compared to 10.2 million tons in the 2019
Quarter, resulting in a 48.8% decrease in coal sales revenues to
$236.3 million, compared to $461.3 million for the 2019 Quarter.
Primarily due to reduced coal shipments to international markets,
transportation revenues and expenses decreased to $5.8 million from
$32.6 million. Other revenues in the 2020 Quarter decreased by $5.4
million to $5.3 million primarily due to reduced sales of mining
technology products by our Matrix Design subsidiary and lower
volumes at our Mt. Vernon transloading facility.
Reflecting ARLP’s decision to temporarily
idle production at certain mines during the 2020 Quarter, coal
production volumes fell 56.9% to 4.3 million tons. Primarily as a
result of lower coal volumes, combined operating expenses and
outside coal purchases for our coal operations decreased 41.5% from
the 2019 Quarter to $185.8 million. Segment Adjusted EBITDA Expense
per ton increased 15.6% in the 2020 Quarter to $35.95 per ton,
compared to $31.11 per ton in the 2019 Quarter. The increase is
attributed primarily to the per ton cost impact of lower coal
volumes, increased inventory charges, a $0.60 per ton
government-imposed increase in the federal black lung excise tax,
effective January 1, 2020, and higher severance taxes per ton due
to the mix of coal sales from various states during the 2020
Quarter. Lower coal sales revenues, partially offset by lower
expenses, caused total Segment Adjusted EBITDA from our coal
operations to decline 64.2% to $55.2 million in the 2020 Quarter,
compared to $154.2 million for the 2019 Quarter. (For a definition
of Segment Adjusted EBITDA Expense, Segment Adjusted EBITDA and
related reconciliations to comparable GAAP financial measures,
please see the end of this release.)
Minerals –
For the 2020 Quarter, our mineral interests
contributed total revenues of $7.8 million from oil & gas
royalties and lease bonuses, compared to $12.4 million for the 2019
Quarter. The decrease in revenues is primarily due to lower oil
& gas sales price realizations resulting from reduced demand
amid the COVID-19 pandemic. Partially offsetting lower prices,
revenues benefited from higher volumes as a result of the Wing
Acquisition in August 2019 as well as continued drilling and
development activity on our mineral interests. Our Minerals segment
contributed Segment Adjusted EBITDA of $6.9 million for the 2020
Quarter, compared to a contribution of $11.1 million for the 2019
Quarter.
ARLP’s expense reduction initiatives drove general and
administrative expenses lower to $13.8 million in the 2020 Quarter,
a reduction of $5.7 million compared to the 2019 Quarter. Compared
to the 2019 Quarter, depreciation, depletion and amortization
increased 8.6% to $83.6 million primarily due to charges related to
increased sales from coal inventory and increased oil & gas
production from our Minerals segment in the 2020 Quarter.
Six Months Ended June 30, 2020 Compared to Six Months Ended June
30, 2019
Total revenues decreased 41.9% to $606.0 million for the six
months ended June 30, 2020 (the "2020 Period") compared to $1.04
billion for the six months ended June 30, 2019 (the "2019 Period")
due to lower coal sales, transportation revenues and revenues from
our mineral interests resulting from weak market conditions and
disruptions caused by the COVID-19 pandemic. Lower revenues and
non-cash impairment charges of $157.0 million, partially offset by
lower operating expenses contributed to a net loss attributable to
ARLP of $191.4 million, or $(1.51) per basic and diluted limited
partner unit for the 2020 Period. This compares to net income
attributable to ARLP of $334.5 million, or $2.57 per basic and
diluted limited partner unit for the 2019 Period, which included a
non-cash net gain of $170.0 million related to the AllDale
Acquisition. Excluding the impact of non-cash items (each described
in more detail below), Adjusted net income (loss) attributable to
ARLP and Adjusted EBITDA for the 2020 Period decreased to $(34.4)
million and $146.5 million, respectively, compared to $164.5
million and $334.6 million, respectively, for the 2019 Period. (For
a definition of EBITDA, Adjusted net income (loss) attributable to
ARLP, Adjusted EBITDA and related reconciliations to comparable
GAAP financial measures, please see the end of this release.)
Coal Operations –
Due to reduced coal sales volumes and prices,
coal sales revenues for the 2020 Period decreased 41.2% to $550.9
million, compared to $937.3 million for the 2019 Period. Tons sold
declined 39.4% to 12.4 million tons in the 2020 Period due to
reduced volumes across all of our mining operations amid demand
destruction for coal-powered electricity caused by the COVID-19
pandemic and low natural gas prices. Primarily due to reduced
shipments of thermal and metallurgical coal to international
markets, coal sales price realizations declined 2.9% in the 2020
Period to $44.30 per ton sold, compared to $45.64 per ton sold
during the 2019 Period. Reduced export shipments also impacted
transportation revenues and expenses, which declined $52.4 million
to $10.5 million in the 2020 Period.
As a result of temporarily idling production
at certain mines during the 2020 Period, coal production volumes
fell to 12.3 million tons, a reduction of 42.2% compared to the
2019 Period. Primarily as a result of lower coal volumes, combined
operating expenses and outside coal purchases for our coal
operations decreased 32.3% to $418.7 million. Segment Adjusted
EBITDA Expense per ton increased 12.1% in the 2020 Period to $33.79
per ton, compared to $30.13 per ton in the 2019 Period. The
increase is attributed primarily to the per ton cost impact of
lower coal volumes, a $0.60 per ton government-imposed increase in
the federal black lung excise tax, effective January 1, 2020, and
higher severance taxes per ton due to the mix of coal sales from
various states during the 2020 Period. Lower coal sales revenues,
partially offset by lower expenses, caused total Segment Adjusted
EBITDA from our coal operations to decline 54.8% to $153.1 million
in the 2020 Period, compared to $338.8 million for the 2019
Period.
Minerals –
For the 2020 Period, our mineral interests
contributed total revenues of $22.1 million from oil & gas
royalties and lease bonuses, compared to $23.2 million for the 2019
Period. The decrease in revenues is primarily due to lower average
prices partially offset by higher volumes resulting from the Wing
Acquisition in August 2019 as well as continued drilling and
development activity on our mineral interests. Comparative results
between the 2020 and 2019 Periods were also impacted by a non-cash
acquisition gain of $177.0 million, of which $7.1 million was
attributable to non-controlling interest, recorded in the 2019
Period associated with the AllDale Acquisition to reflect the fair
value of the interests in AllDale I and II we already owned at the
time of the acquisition. Our Minerals segment contributed net
income of $2.2 million to the 2020 Period, compared to $174.6
million for the 2019 Period, which included the acquisition gain.
Excluding the gain, Segment Adjusted EBITDA related to our Minerals
segment increased slightly to $20.6 million for the 2020 Period
compared to $20.2 million for the 2019 Period.
General and administrative expenses decreased $10.1 million to
$27.3 million in the 2020 Period as a result of ARLP’s expense
reduction initiatives.
During the 2020 Period, we recorded $157.0 million of non-cash
impairment charges, which included a $132.0 million goodwill
impairment charge associated with our Hamilton mine and a $25.0
million asset impairment charge due to the permanent closure of our
Gibson North mine and a decrease in the fair value of certain
mining equipment and greenfield coal reserves. These non-cash
charges reflect the impact of weak coal market conditions and low
energy demand caused primarily by the COVID-19 pandemic.
As a result of the redemption by Kodiak Gas Services, LLC of our
preferred equity interest for $135.0 million cash in the 2019
Period, ARLP did not realize equity securities income in the 2020
Period, compared to $12.9 million in the 2019 Period.
Segment Results and Analysis
% Change
2020 Second
2019 Second
Quarter /
2020 First
% Change
(in millions, except per ton and per
BOE data)
Quarter
Quarter
Quarter
Quarter
Sequential
Coal
Operations
Illinois
Basin
Tons sold
3.350
7.567
(55.7
)%
5.056
(33.7
)%
Coal sales price per ton (1)
$
40.05
$
39.91
0.4
%
$
39.38
1.7
%
Segment Adjusted EBITDA Expense per ton
(2)
$
32.38
$
27.53
17.6
%
$
29.67
9.1
%
Segment Adjusted EBITDA (2)
$
26.2
$
96.1
(72.8
)%
$
50.0
(47.7
)%
Appalachia
Tons sold
1.836
2.649
(30.7
)%
2.195
(16.4
)%
Coal sales price per ton (1)
$
55.62
$
59.63
(6.7)
%
$
52.64
5.7
%
Segment Adjusted EBITDA Expense per ton
(2)
$
40.28
$
39.68
1.5
%
$
36.31
10.9
%
Segment Adjusted EBITDA (2)
$
30.5
$
53.8
(43.2
)%
$
47.5
(35.7
)%
Total
Coal
Tons sold
5.186
10.216
(49.2
)%
7.251
(28.5
)%
Coal sales price per ton (1)
$
45.56
$
45.16
0.9
%
$
43.39
5.0
%
Segment Adjusted EBITDA Expense per ton
(2)
$
35.95
$
31.11
15.6
%
$
32.25
11.5
%
Segment Adjusted EBITDA (2)
$
55.2
$
154.2
(64.2
)%
$
97.9
(43.7
)%
Minerals
(3)
Volume - BOE
0.411
0.353
16.4
%
0.495
(17.0
)%
Volume - oil percentage of BOE
53.3
%
41.7
%
27.8
%
50.8
%
4.9
%
Average sales price per BOE (3)
$
18.92
$
33.80
(44.0
)%
$
28.79
(34.3
)%
Segment Adjusted EBITDA Expense (2)
$
1.12
$
1.77
(36.6
)%
$
0.88
26.7
%
Segment Adjusted EBITDA (2)
$
6.9
$
11.1
(38.0
)%
$
13.8
(50.0
)%
Consolidated
Total (4)
Total revenues
$
255.2
$
517.1
(50.6
)%
$
350.8
(27.2
)%
Segment Adjusted EBITDA Expense (2)
$
187.5
$
319.6
(41.3
)%
$
234.7
(20.1
)%
Segment Adjusted EBITDA (2)
$
62.1
$
165.3
(62.5
)%
$
111.7
(44.4
)%
____________________
(1)
Coal sales price per ton is defined as
total coal sales divided by total tons sold.
(2)
For definitions of Segment Adjusted EBITDA
Expense and Segment Adjusted EBITDA and related reconciliations to
comparable GAAP financial measures, please see the end of this
release. Segment Adjusted EBITDA Expense per ton is defined as
Segment Adjusted EBITDA Expense – Coal (as reflected in the
reconciliation table at the end of this release) divided by total
tons sold.
(3)
Average sales price per BOE is defined as
royalty revenues excluding lease bonus revenue divided by total
barrels of oil equivalent ("BOE"). BOE for natural gas volumes is
calculated on a 6:1 basis (6,000 cubic feet of natural gas to one
barrel).
(4)
Total reflects consolidated results, which
include our other and corporate category and eliminations in
addition to the Illinois Basin, Appalachia and Minerals segments
highlighted above.
In the 2020 Quarter, total coal sales volumes decreased 49.2%
and 28.5% compared to the 2019 and Sequential Quarters,
respectively, due to the impacts of the COVID-19 pandemic and coal
market deterioration. Compared to the 2019 Quarter, export
shipments were down 1.7 million tons. With coal production
curtailed as a result of the temporary cessation of production at
various operations in both the Illinois Basin and Appalachian
regions, total coal inventory fell to 1.7 million tons at the end
of the 2020 Quarter, a decrease of 34.6% compared to the Sequential
Quarter.
Compared to the 2019 Quarter, total coal sales prices were
higher due to an increased sales mix of higher-priced Appalachia
sales tons in the 2020 Quarter. Appalachia price realizations
decreased by 6.7% compared to the 2019 Quarter primarily due to
lower metallurgical coal sales prices. Sequentially, coal sales
price per ton sold in the 2020 Quarter increased in both regions
primarily due to higher price realizations from our River View and
Tunnel Ridge mines and increased sales volumes from our Mettiki
mine.
In the Illinois Basin, Segment Adjusted EBITDA Expense per ton
in the 2020 Quarter increased 17.6% and 9.1% compared to the 2019
and Sequential Quarters, respectively, primarily as a result of
reduced coal volumes. In Appalachia, Segment Adjusted EBITDA
Expense per ton increased 1.5% and 10.9% compared to the 2019 and
Sequential Quarters, respectively, as a result of reduced volumes
in the region and an increased sales mix of higher-cost Mettiki
production in the 2020 Quarter. Compared to the 2019 Quarter,
expenses per ton for both segments were impacted by higher excise
and severance taxes and inventory charges discussed above.
Segment Adjusted EBITDA for our Minerals segment decreased 38.0%
to $6.9 million in the 2020 Quarter compared to $11.1 million in
the 2019 Quarter primarily due to lower sales price realizations
per BOE resulting from reduced demand amid the COVID-19 pandemic,
partially offset by higher volumes, which increased 16.4% compared
to the 2019 Quarter primarily as a result of production from the
additional mineral interests acquired in the Wing Acquisition.
Compared to the Sequential Quarter, Segment Adjusted EBITDA
decreased 50.0% due to reduced price realizations and volumes
resulting from disruptions caused by the pandemic.
Outlook
"As difficult as the last six months have been, we are beginning
to see signs of encouragement," said Mr. Craft. "Businesses are
beginning to re-open and economies are slowly coming back to life.
Improved economic activity and favorable weather patterns have
increased power demand, lifting month-over-month coal burn in June
by 55% in the eastern U.S. and resulting in the first decline in
utility stockpiles in nearly a year. Internationally, the forward
price curve has improved and long-term fundamentals remain
constructive for coal. Oil & gas prices are recovering from
recent historic lows, encouraging operators to bring wells back
into production and complete wells that have already been drilled.
These favorable trends support our cautious optimism that the
second half of this year will be better than the first."
Mr. Craft continued, "While early signs of increasing economic
activity are encouraging, we are all aware that challenges persist.
With coronavirus cases increasing nationwide, some governors have
responded by pausing or reversing re-opening plans ─ potentially
jeopardizing nascent recovery efforts. The timing and pace of
recovery remains unclear and a return to normalcy will likely occur
gradually as we anxiously await a vaccine. Shrinking revenues and
cash flows continue to pressure the coal and oil & gas
industries. Reduced supply and increased demand are needed before a
sustained recovery can occur in both industries. As we continue to
manage through these uncertainties, ARLP will remain focused on the
wellbeing of our employees, servicing the needs of our customers
and protecting our balance sheet. We remain committed to making the
hard choices necessary to emerge from the current environment with
a strong foundation that will return ARLP to sustainable growth in
cash flows and deliver attractive long-term value for our
stakeholders."
A conference call regarding ARLP's 2020 Quarter financial
results is scheduled for today at 10:00 a.m. Eastern. To
participate in the conference call, dial (877) 506-1589 and request
to be connected to the Alliance Resource Partners, L.P. earnings
conference call. Canadian callers should dial (855) 669-9657 and
all other international callers should dial (412) 317-5240 and
request to be connected to the same call. Investors may also listen
to the call via the "investor information" section of ARLP's
website at http://www.arlp.com.
An audio replay of the conference call will be available for
approximately one week. To access the audio replay, dial US Toll
Free (877) 344-7529; International Toll (412) 317-0088; Canada Toll
Free (855) 669-9658 and request to be connected to replay access
code 10146346.
About Alliance Resource Partners, L.P.
ARLP is a diversified natural resource company that generates
income from coal production and oil & gas mineral interests
located in strategic producing regions across the United
States.
ARLP operates seven coal mining complexes in Illinois, Indiana,
Kentucky, Maryland and West Virginia. ARLP also operates a coal
loading terminal on the Ohio River at Mount Vernon, Indiana. ARLP
markets its coal production to major domestic and international
utilities and industrial users and is currently the second largest
coal producer in the eastern United States.
ARLP generates royalty income from mineral interests it owns in
premier oil & gas producing regions in the United States,
primarily the Permian, Anadarko and Williston basins.
In addition, ARLP also generates income from a variety of other
sources.
News, unit prices and additional information about ARLP,
including filings with the Securities and Exchange Commission
("SEC"), are available at http://www.arlp.com. For more
information, contact the investor relations department of ARLP at
(918) 295-7674 or via e-mail at investorrelations@arlp.com.
The statements and projections used throughout this release are
based on current expectations. These statements and projections are
forward-looking, and actual results may differ materially. These
projections do not include the potential impact of any mergers,
acquisitions or other business combinations that may occur after
the date of this release. We have included more information below
regarding business risks that could affect our results.
FORWARD-LOOKING STATEMENTS: With the exception of historical
matters, any matters discussed in this press release are
forward-looking statements that involve risks and uncertainties
that could cause actual results to differ materially from projected
results. Those forward-looking statements include optimizing cash
flows, reducing operating and capital expenditures, preserving
liquidity and maintaining financial flexibility, among others.
These risks to our ability to achieve these outcomes include, but
are not limited to, the following: the impact of COVID-19 both to
the execution of our day to day operations including potential
closures, as well as to the pandemic's broader impact on demand for
coal, oil and natural gas, the financial condition of our customers
and suppliers, available liquidity and credit sources and broader
economic disruption that is evolving. In addition, the actions of
the major oil producing countries with respect to oil production
and prices may have direct and indirect impacts over the near and
long term to our Minerals segment. These risks compound the ongoing
risks to our business, including decline in the coal industry's
share of electricity generation, including as a result of
environmental concerns related to coal mining and combustion and
the cost and perceived benefits of other sources of electricity and
fuels, such as oil & gas, nuclear energy, and renewable fuels;
changing global economic conditions or in industries in which our
customers operate; changes in coal prices and/or oil & gas
prices, demand and availability which could affect our operating
results and cash flows; changes in competition in domestic and
international coal markets and our ability to respond to such
changes; potential curtailment of oil & gas production by
operators of the properties in which we hold mineral interests due
to lack of downstream demand or storage capacity; risks associated
with the expansion of our operations and properties; our ability to
identify and complete acquisitions; dependence on significant
customer contracts, including renewing existing contracts upon
expiration; adjustments made in price, volume, or terms to existing
coal supply agreements; recent action and the possibility of future
action on trade made by United States and foreign governments; the
effect of new tariffs and other trade measures; legislation,
regulations, and court decisions and interpretations thereof, both
domestic and foreign, including those relating to the environment
and the release of greenhouse gases, mining, miner health and
safety, hydraulic fracturing, and health care; deregulation of the
electric utility industry or the effects of any adverse change in
the coal industry, electric utility industry, or general economic
conditions; liquidity constraints, including those resulting from
any future unavailability of financing; customer bankruptcies,
cancellations or breaches to existing contracts, or other failures
to perform; customer delays, failure to take coal under contracts
or defaults in making payments; our productivity levels and margins
earned on our coal sales; disruptions to oil & gas exploration
and production operations at the properties in which we hold
mineral interests; changes in raw material costs; changes in the
availability of skilled labor; our ability to maintain satisfactory
relations with our employees; increases in labor costs including
costs of health insurance and taxes resulting from the Affordable
Care Act, adverse changes in work rules, or cash payments or
projections associated with workers' compensation claims; increases
in transportation costs and risk of transportation delays or
interruptions; operational interruptions due to geologic,
permitting, labor, weather-related or other factors; risks
associated with major mine-related accidents, mine fires, mine
floods or other interruptions; results of litigation, including
claims not yet asserted; foreign currency fluctuations that could
adversely affect the competitiveness of our coal abroad; difficulty
maintaining our surety bonds for mine reclamation as well as
workers' compensation and black lung benefits; difficulty in making
accurate assumptions and projections regarding post-mine
reclamation as well as pension, black lung benefits, and other
post-retirement benefit liabilities; uncertainties in estimating
and replacing our coal reserves; uncertainties in estimating and
replacing our oil & gas reserves; uncertainties in the amount
of oil & gas production due to the level of drilling and
completion activity by the operators of our oil & gas
properties; the impact of current and potential changes to federal
or state tax rules and regulations, including a loss or reduction
of benefits from certain tax deductions and credits; difficulty
obtaining commercial property insurance, and risks associated with
our participation in the commercial insurance property program;
evolving cybersecurity risks, such as those involving unauthorized
access, denial-of-service attacks, malicious software, data privacy
breaches by employees, insiders or others with authorized access,
cyber or phishing-attacks, ransomware, malware, social engineering,
physical breaches or other actions; and difficulty in making
accurate assumptions and projections regarding future revenues and
costs associated with equity investments in companies we do not
control.
Additional information concerning these and other factors can
be found in ARLP's public periodic filings with the SEC, including
ARLP's Annual Report on Form 10-K for the year ended December 31,
2019, filed on February 20, 2020 and ARLP's Quarterly Report on
Form 10-Q for the quarter ended March 31, 2020, filed on May 8,
2020 with the SEC. Except as required by applicable securities
laws, ARLP does not intend to update its forward-looking
statements.
ALLIANCE RESOURCE PARTNERS,
L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS AND OPERATING DATA
(In thousands, except unit and
per unit data)
(Unaudited)
Three Months Ended
Six Months Ended
June 30,
June 30,
2020
2019
2020
2019
Tons Sold
5,186
10,216
12,437
20,537
Tons Produced
4,323
10,036
12,344
21,359
Mineral Interest Volumes (BOE)
411
353
906
680
SALES AND OPERATING REVENUES:
Coal sales
$
236,286
$
461,310
$
550,923
$
937,326
Oil & gas royalties
7,786
11,892
22,025
22,285
Transportation revenues
5,757
32,630
10,496
62,868
Other revenues
5,373
11,222
22,521
21,177
Total revenues
255,202
517,054
605,965
1,043,656
EXPENSES:
Operating expenses (excluding
depreciation, depletion and amortization)
187,164
314,273
421,506
617,001
Transportation expenses
5,757
32,630
10,496
62,868
Outside coal purchases
—
5,311
—
5,311
General and administrative
13,822
19,521
27,260
37,333
Depreciation, depletion and
amortization
83,559
76,913
157,480
148,052
Asset impairments
—
—
24,977
—
Goodwill impairment
—
—
132,026
—
Total operating expenses
290,302
448,648
773,745
870,565
INCOME (LOSS) FROM OPERATIONS
(35,100
)
68,406
(167,780
)
173,091
Interest expense, net
(11,446
)
(10,711
)
(23,725
)
(22,133
)
Interest income
30
138
82
229
Equity method investment income
137
550
588
874
Equity securities income
—
—
—
12,906
Acquisition gain
—
—
—
177,043
Other expense
(377
)
(13
)
(733
)
(142
)
INCOME (LOSS) BEFORE INCOME
TAXES
(46,756
)
58,370
(191,568
)
341,868
INCOME TAX EXPENSE (BENEFIT)
(77
)
186
(182
)
80
NET INCOME (LOSS)
(46,679
)
58,184
(191,386
)
341,788
LESS: NET LOSS (INCOME) ATTRIBUTABLE TO
NONCONTROLLING INTEREST
15
(114
)
(61
)
(7,290
)
NET INCOME (LOSS) ATTRIBUTABLE TO
ARLP
$
(46,664
)
$
58,070
$
(191,447
)
$
334,498
EARNINGS PER LIMITED PARTNER UNIT -
BASIC AND DILUTED
$
(0.37
)
$
0.44
$
(1.51
)
$
2.57
WEIGHTED-AVERAGE NUMBER OF UNITS
OUTSTANDING – BASIC AND DILUTED
127,195,219
128,391,191
127,133,764
128,271,158
ALLIANCE RESOURCE PARTNERS,
L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE
SHEETS
(In thousands, except unit
data)
(Unaudited)
June 30,
December 31,
2020
2019
ASSETS
CURRENT ASSETS:
Cash and cash equivalents
$
35,106
$
36,482
Trade receivables
104,361
161,679
Other receivables
281
256
Inventories, net
88,393
101,305
Advance royalties
344
1,844
Prepaid expenses and other assets
12,697
18,019
Total current assets
241,182
319,585
PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment, at cost
3,615,721
3,684,008
Less accumulated depreciation, depletion
and amortization
(1,700,741
)
(1,675,022
)
Total property, plant and equipment,
net
1,914,980
2,008,986
OTHER ASSETS:
Advance royalties
60,074
52,057
Equity method investments
27,705
28,529
Goodwill
4,373
136,399
Operating lease right-of-use assets
15,821
17,660
Other long-term assets
21,493
23,478
Total other assets
129,466
258,123
TOTAL ASSETS
$
2,285,628
$
2,586,694
LIABILITIES AND PARTNERS'
CAPITAL
CURRENT LIABILITIES:
Accounts payable
$
51,184
$
80,566
Accrued taxes other than income taxes
19,783
15,768
Accrued payroll and related expenses
39,234
36,575
Accrued interest
5,376
5,664
Workers' compensation and pneumoconiosis
benefits
11,175
11,175
Current finance lease obligations
699
8,368
Current operating lease obligations
1,954
3,251
Other current liabilities
18,947
21,062
Current maturities, long-term debt,
net
55,746
13,157
Total current liabilities
204,098
195,586
LONG-TERM LIABILITIES:
Long-term debt, excluding current
maturities, net
704,661
768,194
Pneumoconiosis benefits
96,035
94,389
Accrued pension benefit
42,924
44,858
Workers' compensation
46,597
45,503
Asset retirement obligations
136,072
133,018
Long-term finance lease obligations
1,850
2,224
Long-term operating lease obligations
13,904
14,316
Other liabilities
16,335
23,182
Total long-term liabilities
1,058,378
1,125,684
Total liabilities
1,262,476
1,321,270
PARTNERS' CAPITAL:
ARLP Partners' Capital:
Limited Partners - Common Unitholders
127,195,219 and 126,915,597 units outstanding, respectively
1,087,782
1,331,482
Accumulated other comprehensive loss
(76,116
)
(77,993
)
Total ARLP Partners' Capital
1,011,666
1,253,489
Noncontrolling interest
11,486
11,935
Total Partners' Capital
1,023,152
1,265,424
TOTAL LIABILITIES AND PARTNERS'
CAPITAL
$
2,285,628
$
2,586,694
ALLIANCE RESOURCE PARTNERS,
L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Six Months Ended
June 30,
2020
2019
CASH FLOWS FROM OPERATING
ACTIVITIES
$
170,168
$
301,703
CASH FLOWS FROM INVESTING
ACTIVITIES:
Property, plant and equipment:
Capital expenditures
(84,245
)
(165,627
)
Change in accounts payable and accrued
liabilities
(6,508
)
4,442
Proceeds from sale of property, plant and
equipment
2,739
701
Distributions received from investments in
excess of cumulative earnings
551
2,358
Payments for acquisitions of businesses,
net of cash acquired
—
(185,935
)
Cash received from redemption of equity
securities
—
134,288
Net cash used in investing activities
(87,463
)
(209,773
)
CASH FLOWS FROM FINANCING
ACTIVITIES:
Borrowings under securitization
facility
12,800
118,000
Payments under securitization facility
(47,700
)
(135,000
)
Proceeds from equipment financings
14,705
10,000
Payments on equipment financings
(6,494
)
(253
)
Borrowings under revolving credit
facilities
70,000
90,000
Payments under revolving credit
facilities
(60,000
)
(195,000
)
Payments on finance lease obligations
(8,043
)
(16,554
)
Payment of debt issuance costs
(5,776
)
—
Payments for purchases of units under unit
repurchase program
—
(5,251
)
Net settlement of withholding taxes on
issuance of units in deferred compensation plans
(1,310
)
(7,817
)
Distributions paid to Partners
(51,753
)
(138,500
)
Other
(510
)
(490
)
Net cash used in financing activities
(84,081
)
(280,865
)
NET CHANGE IN CASH AND CASH
EQUIVALENTS
(1,376
)
(188,935
)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD
36,482
244,150
CASH AND CASH EQUIVALENTS AT END OF
PERIOD
$
35,106
$
55,215
Reconciliation of GAAP "net income (loss)
attributable to ARLP" to non-GAAP "Adjusted net income (loss)
attributable to ARLP" (in thousands).
Adjusted net income (loss) attributable to ARLP is defined as
net income (loss) attributable to ARLP modified for certain items
that may not reflect the trend of future results, such as asset and
goodwill impairments and acquisition gains.
Adjusted net income (loss) attributable to ARLP should not be
considered as an alternative to net income (loss) attributable to
ARLP or any other measure of financial performance presented in
accordance with GAAP. Adjusted net income (loss) attributable to
ARLP excludes certain items that management believes affect the
comparability of our operating results. This adjusted financial
measure is used by our management and external users of our
financial statements, such as investors, commercial banks, research
analysts and others, to assess:
- our operational trends and performance relative to other coal
and mineral companies;
- the comparability of our performance to earnings estimates
provided by security analysts; and
- our performance excluding items which are generally
nonrecurring in nature or whose timing or amount cannot be
reasonably estimated.
We believe Adjusted net income (loss) attributable to ARLP is a
useful measure for investors because it further demonstrates our
financial performance without regard to items that may not reflect
the trend of future results.
Three Months Ended
Six Months Ended
Three Months Ended
June 30,
June 30,
March 31,
2020
2019
2020
2019
2020
Net income (loss) attributable to ARLP
$
(46,664
)
$
58,070
$
(191,447
)
$
334,498
$
(144,783
)
Asset impairments
—
—
24,977
—
24,977
Goodwill impairment
—
—
132,026
—
132,026
Acquisition gain
—
—
—
(177,043
)
—
Acquisition gain attributable to
noncontrolling interest
—
—
—
7,083
—
Adjusted net income (loss) attributable to
ARLP
$
(46,664
)
$
58,070
$
(34,444
)
$
164,538
$
12,220
Reconciliation of GAAP "net income (loss)
attributable to ARLP" to non-GAAP "EBITDA," "Adjusted EBITDA" and
"Distributable Cash Flow" (in thousands).
EBITDA is defined as net income (loss) attributable to ARLP
before net interest expense, income taxes and depreciation,
depletion and amortization and Adjusted EBITDA is EBITDA modified
for certain items that may not reflect the trend of future results,
such as asset and goodwill impairments and acquisition gains.
Distributable cash flow ("DCF") is defined as Adjusted EBITDA
excluding interest expense (before capitalized interest), interest
income, income taxes and estimated maintenance capital
expenditures. Distribution coverage ratio ("DCR") is defined as DCF
divided by distributions paid to partners.
Management believes that the presentation of such additional
financial measures provides useful information to investors
regarding our performance and results of operations because these
measures, when used in conjunction with related GAAP financial
measures, (i) provide additional information about our core
operating performance and ability to generate and distribute cash
flow, (ii) provide investors with the financial analytical
framework upon which management bases financial, operational,
compensation and planning decisions and (iii) present measurements
that investors, rating agencies and debt holders have indicated are
useful in assessing us and our results of operations.
EBITDA, Adjusted EBITDA, DCF and DCR should not be considered as
alternatives to net income (loss) attributable to ARLP, net income
(loss), income (loss) from operations, cash flows from operating
activities or any other measure of financial performance presented
in accordance with GAAP. EBITDA, Adjusted EBITDA and DCF are not
intended to represent cash flow and do not represent the measure of
cash available for distribution. Our method of computing EBITDA,
Adjusted EBITDA, DCF and DCR may not be the same method used to
compute similar measures reported by other companies, or EBITDA,
Adjusted EBITDA, DCF and DCR may be computed differently by us in
different contexts (i.e. public reporting versus computation under
financing agreements).
Three Months Ended
Six Months Ended
Three Months Ended
June 30,
June 30,
March 31,
2020
2019
2020
2019
2020
Net income (loss) attributable to ARLP
$
(46,664
)
$
58,070
$
(191,447
)
$
334,498
$
(144,783
)
Depreciation, depletion and
amortization
83,559
76,913
157,480
148,052
73,921
Interest expense, net
11,925
10,811
24,709
22,396
12,784
Capitalized interest
(509
)
(238
)
(1,066
)
(492
)
(557
)
Income tax expense (benefit)
(77
)
186
(182
)
80
(105
)
EBITDA
48,234
145,742
(10,506
)
504,534
(58,740
)
Asset impairments
—
—
24,977
—
24,977
Goodwill impairment
—
—
132,026
—
132,026
Acquisition gain
—
—
—
(177,043
)
—
Acquisition gain attributable to
noncontrolling interest
—
—
—
7,083
—
Adjusted EBITDA
48,234
145,742
146,497
334,574
98,263
Interest expense, net
(11,925
)
(10,811
)
(24,709
)
(22,396
)
(12,784
)
Income tax (expense) benefit
77
(186
)
182
(80
)
105
Estimated maintenance capital expenditures
(1)
(21,010
)
(55,901
)
(59,992
)
(118,970
)
(38,982
)
Distributable Cash Flow
$
15,376
$
78,844
$
61,978
$
193,128
$
46,602
Distributions paid to partners
$
—
$
69,489
$
51,753
$
138,500
$
51,753
Distribution Coverage Ratio
—
1.13
1.20
1.39
0.90
____________________
(1)
Maintenance capital expenditures are those
capital expenditures required to maintain, over the long-term, the
existing infrastructure of our coal assets. We estimate maintenance
capital expenditures on an annual basis based upon a five-year
planning horizon. For the 2020 planning horizon, average annual
estimated maintenance capital expenditures are assumed to be $4.86
per ton produced compared to the estimated $5.57 per ton produced
in 2019. Our actual maintenance capital expenditures fluctuate
depending on various factors, including maintenance schedules and
timing of capital projects, among others. We annually disclose our
actual maintenance capital expenditures in our Form 10-K filed with
the SEC.
Reconciliation of GAAP "Cash flows from
operating activities" to non-GAAP "Free cash flow" (in
thousands).
Free cash flow is defined as cash flows from operating
activities less capital expenditures. Free cash flow should not be
considered as an alternative to cash flows from operating
activities or any other measure of financial performance presented
in accordance with GAAP. Our method of computing free cash flow may
not be the same method used by other companies. Free cash flow is a
supplemental liquidity measure used by our management to assess our
ability to generate excess cash flow from our operations.
Three Months Ended
Six Months Ended
Three Months Ended
June 30,
June 30,
March 31,
2020
2019
2020
2019
2020
Cash flows from operating activities
$
91,449
$
157,997
$
170,168
$
301,703
$
78,719
Capital expenditures
(33,881
)
(81,584
)
(84,245
)
(165,627
)
(50,364
)
Free cash flow
$
57,568
$
76,413
$
85,923
$
136,076
$
28,355
Reconciliation of GAAP "Operating
Expenses" to non-GAAP "Segment Adjusted EBITDA Expense" and
Reconciliation of non-GAAP "Adjusted EBITDA" to "Segment Adjusted
EBITDA" (in thousands).
Segment Adjusted EBITDA Expense includes operating expenses,
coal purchases and other expense. Segment Adjusted EBITDA Expense –
Coal excludes expenses of our Minerals segment. Transportation
expenses are excluded as these expenses are passed through to our
customers and, consequently, we do not realize any margin on
transportation revenues. Segment Adjusted EBITDA Expense is used as
a supplemental financial measure by our management to assess the
operating performance of our segments. Segment Adjusted EBITDA
Expense is a key component of EBITDA and Adjusted EBITDA in
addition to coal sales, royalty revenues and other revenues. The
exclusion of corporate general and administrative expenses from
Segment Adjusted EBITDA Expense allows management to focus solely
on the evaluation of segment operating performance as it primarily
relates to our operating expenses.
Three Months Ended
Six Months Ended
Three Months Ended
June 30,
June 30,
March 31,
2020
2019
2020
2019
2020
Operating expense
$
187,164
$
314,273
$
421,506
$
617,001
$
234,342
Outside coal purchases
—
5,311
—
5,311
—
Other expense
377
13
733
142
356
Segment Adjusted EBITDA Expense
187,541
319,597
422,239
622,454
234,698
Minerals expenses
(1,119
)
(1,765
)
(2,002
)
(3,592
)
(883
)
Segment Adjusted EBITDA Expense - Coal
$
186,422
$
317,832
$
420,237
$
618,862
$
233,815
Divided by tons sold
5,186
10,216
12,437
20,537
7,251
Segment Adjusted EBITDA Expense per
ton
$
35.95
$
31.11
$
33.79
$
30.13
$
32.25
Segment Adjusted EBITDA is defined as net income (loss)
attributable to ARLP before net interest expense, income taxes,
depreciation, depletion and amortization, general and
administrative expenses, asset and goodwill impairments and
acquisition gain. Segment Adjusted EBITDA – Coal excludes the
contribution of our Minerals segment and equity securities income
to allow management to focus solely on the operating performance of
our coal segments.
Three Months Ended
Six Months Ended
Three Months Ended
June 30,
June 30,
March 31,
2020
2019
2020
2019
2020
Adjusted EBITDA (See reconciliation to
GAAP above)
$
48,234
$
145,742
$
146,497
$
334,574
$
98,263
General and administrative
13,822
19,521
27,260
37,333
13,438
Segment Adjusted EBITDA
62,056
165,263
173,757
371,907
111,701
Minerals segment
(6,881
)
(11,098
)
(20,636
)
(20,230
)
(13,755
)
Equity securities income
—
—
—
(12,906
)
—
Segment Adjusted EBITDA – Coal
$
55,175
$
154,165
$
153,121
$
338,771
$
97,946
Divided by tons sold
5,186
10,216
12,437
20,537
7,251
Segment Adjusted EBITDA per ton
$
10.64
$
15.09
$
12.31
$
16.50
$
13.51
View source
version on businesswire.com: https://www.businesswire.com/news/home/20200727005092/en/
Brian L. Cantrell Alliance Resource Partners, L.P. (918)
295-7673
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